Shares of the iconic software company Adobe Systems Incorporated (ADBE) jumped more than 4% in early trading on Friday after fourth-quarter earnings topped expectations. ADBE stock was already up 22% in 2015 before the impressive results.
Last quarter was just the latest confirmation that Adobe is a quality company that does a few things really well: Photoshop, Acrobat and Flash are its three flagship products, and each is widely used in its respective area. On the heels of Q4 results, the Adobe brand’s strength proves yet again that it’s the company’s most valuable asset.
Thankfully for ADBE stock owners, the company is also brilliantly leveraging that asset through the cloud.
Frankly, the cloud has been a godsend for Adobe, and it’s the main reason analysts expect the company’s revenue growth to actually accelerate in both fiscal 2016 and fiscal 2017.
Let’s take a look at its most recent quarter, and why it bodes well for ADBE stock:
Be Proud of the Cloud
Shares of other big-name application and enterprise software companies like SAP (SAP), Autodesk (ADSK) and Oracle (ORCL) haven’t been able to keep up with ADBE this year, and after Thursday’s results it’s even less likely they’ll catch up.
Adobe logged its ninth straight quarterly profits beat; adjusted earnings per share clocked in at 62 cents vs. consensus estimates for 60 cents. Net income of $311.9 million was up a whopping 59% from the year-ago profit of $195.7 million, which broke down to an EPS of 39 cents.
Fourth-quarter revenue met expectations, growing 22% year-over-year to reach $1.31 billion.
Subscriber growth to Adobe’s Creative Cloud — a group of software tools including Photoshop, Dreamweaver and Flash, drove revenue, as members increased by 833,000 to 6.17 million. That was much higher than the 678,200 new members analysts expected.
Customers have the option of subscribing to the full suite of software products or individual products, and of the individual ones Photoshop Lightroom experienced the fastest growth. Interestingly, Chief Financial Officer Mark Garrett attributed this growth largely to “hobbyists and consumers and people that would never buy the Creative products before.”
Subscription revenues are ADBE’s bread and butter. Of the three broad categories Adobe’s revenue is broken up into — subscription, product, and services and support — subscription is the only one that grew year-over-year. Since it’s by far the largest segment, making up 69% of revenue, and because it’s growing like crazy (up 44% in Q4), that’s not so worrisome.
Bottom Line for ADBE Stock
I applaud Adobe for putting together another great quarter and capping off a solid year. Adoption of the cloud should continue to be a strong catalyst for the company going forward, and the fact that hobbyists and creative types are driving growth right now serves as testament to Adobe’s strong brand and reputation.
Despite now being up about 26% in 2015, ADBE stock remains a strong buy going forward.
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
